TMI Blog2021 (5) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and made addition for deemed dividend. However the addition for deemed dividend should have been made at ₹ 2,19,74,818/- as against the addition of ₹ 2,20, 87,842/- made by the Ld. A.O as the addition for deemed dividend cannot exceed the accumulated profits of the lender company as appearing in the books before giving such loan and advance. We thus set aside the finding of Ld. CIT(A), confirm the addition u/s 2(22)(e) of the Act at ₹ 2,19,74,818/- and partly allow Revenue s Appeal Ground No.1. - ITA No. 720/Ind/2019 - - - Dated:- 30-4-2021 - Hon ble Manish Borad, Accountant Member And Hon ble Madhumita Roy, Judicial Member For the Assessee : S/Shri Asish Goyal N.D. Patwa, ARs For the Revenue : Shri Harshit Bari, Sr.DR ORDER PER MANISH BORAD, A.M The above captioned appeal filed at the instance of the Revenue for Assessment Year 2012-13 is directed against the order of Ld. Commissioner of Income Tax(Appeals)-II (in short Ld. CIT], Indore dated 29.03.2019 which is arising out of the order u/s 147/143(3) of the Income Tax Act 1961(In short the Act ) dated 19.12.2017 framed by ACIT-4(1), Indore. 2. Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Tribunal. 6. Ld. Departmental Representative apart from relying on the detailed finding of Ld. A.O also submitted that the issue raised in this appeal is squarely covered in favour of the revenue by the judgment of Hon'ble Supreme Court of India in the case of National Travel Services V/s CIT, Delhi (2018) 89 taxmann.com 332 (SC) order dated 18.1.2018. Ld. Sr. DR has also submitted that the Hon'ble Apex Court has also considered the judgment of Hon'ble High Court of Delhi in the case of Ankitech s (P) Ltd ITA 462/2009. 7. On the other hand Ld. Counsel for the assessee submitted that no addition in the hands of assessee company is called for since it is not the share holder of lender companies. Healso made following written submissions:- Regarding deemed dividend u/s 2(22)(e) 1. Ld. A.O added deemed dividend from three companies:- Sr. No Name of Company Common shareholding Loan given during the year (Rs.) Accumulated profit of lender company Amount added 1 Rajkamal Builders P Ltd. (RBP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(22)(e), both the conditions regarding assessee being registered as well as benefincial shareholder of the lender company are required to be established in the present case, the assessee is neither a registered nor a beneficial shareholder of the lender company. Reliance was placed on the judgments as under: (a)ACIT vs Bhoumik Colour Pvt. Ltd 118 ITD 1 (Mum.)(SB) (b)CIT vs C.P. Sarathy Mudaliar 83 ITR 170 (SC) (c) Rameshwarlal Sanwarmal 122 ITR 162 (SC) (d) JCIT vs Kunal Organics P Ltd 164 Taxman 169 (Ahd.) 3 PB 119-139 CIT vs Ankitech P Ltd 11 taxmann 100 (Del.) Whether legal fiction created u/s 2(22)(e) enlarges definition of dividend only, legal fiction is not to be extended further for broadening concept of shareholders Held, yes. Whether any company is supposed to distribute profits in form of dividend to its shareholders/ members and such dividend cannot be given to non-members- Held, yes. 4 PB 140-143 CIT vs Hotel Hilltop 18 taxmann.com 308 (Raj.) Where assessee firm had received an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Rajkamal Builders 86,95,000 6,06,91,862 86,95,000 2,20,87,842 10. The above details shows that there is a share holder namely Shri Punyapal Surana who has substantial share holding as provided u/s 2(22)(e) of the Act in all the four concerns enumerated above. The assessee s company has received loans from other three concerns. It is not the case of the assessee that falls in any exclusion provided in Section 2(22)(e) of the Act and that the alleged transactions between these companies are in the ordinary course of business where lending of money is a substantial part of the business of the company. 11. The issue before us is that whether the Ld. A.O was justified in making the addition in the hands of the assessee company which in its individual capacity is not the share holder in the above stated three lender companies but there is a common shareholder having substantial share holding in all the four companies . Provisions of Section 2(22)(e) of the Act reads as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression accumulated profits in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 2A.-In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation. Explanation 3.-For the purposes of this clause,- (a) concern means a Hindu undivided fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare holder in all the four companies which includes the assessee company and three lender companies. Whether under these given facts the action of the Ld. A.O of making addition u/s 2(22)(e) of the Act is justified or not needs to be tested in the light of settled judicial precedents. 16. Though the Ld. Counsel for the assessee as well as Ld. CIT(A) has referred to various judgments but in our considered view the judgment of Hon'ble Supreme Court in the case of National Travel Services V/s CIT (supra) is very relevant on the facts of the case. The facts before the Hon'ble Apex Court were with regard to the assessee firm to subscribe to the equity capital in a company in the name of its two partners who held shares for and on behalf of the firm which happen to be for the benefit of the shareholder. However the ratio laid down by the Hon'ble Court has bearing on the issue raised in the instant appeal before us. The relevant portion of the judgment of Hon'ble Apex Court in the case of National Travel Services V/s CIT is extracted below:- 9) A cursory look at the aforesaid definition would go to show that the shareholder referred to in the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the previous year, beneficially entitled to not less than twenty per cent of the income of such concern; 11) The Explanatory memorandum to the amendment thus made reads as follows:- With the deletion of Section 104 to 109 there was a likelihood of closely held companies not distributing their profits to shareholders by way of dividends but by way of loans or advances so that these are not taxed in the hands of the shareholders. To forestall this manipulation, sub-clause (e) of clause (22) of Section 2 has been suitably amended. Under the existing provisions, payments by way of loans or advance to shareholders having substantial interest in a company to the extent to which the company possesses accumulated profits is treated as dividend. The shareholders having substantial interest are those who have a shareholding carrying not less than 20 per cent voting power as per the provisions of clause (32) of Section 2. The amendment of the definition extends its application to payments made (i) to a shareholder holding not less than 10 per cent of the voting power, or (ii) to a concern in which the shareholder has substantial interest. Concern as per the newly inserted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar and are thus distinguishable. 18. In the instant case we find that one person namely Shri Punyapal Surana is a substantial shareholder in all the four companies which includes three lender companies and one receiver company. The Second limb of Section 2(22)(e) of the Act is very much clear that deemed dividend includes any payment made by the company not being a company in which the public are substantially interested, made after 31.8.1987, by way of advance or loan to any concern in which such share holder is a member or partner and in which he has substantial interest. Further Explanation (3)(a) to Section 2(22)(e) provides that concerns means a HUF or a firm or an association of persons or a body of individuals or a company and the person shall be deemed to have substantially interest in the concern other than company if he is, at any time during the previous year is beneficially entitled to not less than 20% of the income of such concern. In case the concern is a company the person is deemed to have substantial interest if holding not less than 10% of the voting power in the company. The facts of the instant case clearly spells out that the assessee case falls und ..... 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